##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-18279
 TRI-COUNTY FINANCIAL CORPORATION
  Maryland
    
    52-1652138(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)3035 Leonardtown Road, Waldorf, Maryland
    
    20601(Address of principal executive offices)
    
    (Zip Code)
 (301) 645-5601
 None
  Common Stock, par value $0.01 per share
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 1.
    
    Portions of the Annual Report to Stockholders for the year ended December 31, 2007. (Part II)2.
    
    Portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders. (Part III)




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##### 



INDEX
 PagePart IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    22Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    26Item 3. Legal Proceedings
    
    
    26Item 4. Submission of Matters to a Vote of Securities Holders
    
    
    26Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    27Item 6. Selected Financial Data
    
    
    28Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8. Financial Statements and Supplementary Data
    
    
    28Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    28Item 9A(T) Controls and Procedures
    
    
    28Item 9B. Other Information
    
    
    29Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    29Item 11. Executive Compensation
    
    
    29Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    29Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    30Item 14. Principal Accountant Fees and Services
    
    
    30Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    31EX-13 ANNUAL REPORT TO STOCKHOLDERSEX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF STEGMAN AND COMPANYEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO
  i




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##### Table of Contents



PART I
 This report contains certain forward-looking statements within the meaning of the federal
securities laws. These statements are not historical facts, rather statements based on Tri-County
Financial Corporations current expectations regarding its business strategies, intended results
and future performance. Forward-looking statements are preceded by terms such as expects,
believes, anticipates, intends and similar expressions.
 Managements ability to predict results or the effect of future plans or strategies is
inherently uncertain. Factors that could affect actual results include interest rate trends, the
general economic climate in the market area in which Tri-County Financial Corporation operates, as
well as nationwide, Tri-County Financial Corporations ability to control costs and expenses,
competitive products and pricing, loan delinquency rates and changes in federal and state
legislation and regulation. These factors should be considered in evaluating the forward-looking
statements and undue reliance should not be placed on such statements. Tri-County Financial
Corporation assumes no obligation to update any forward-looking statements.
 
 Item 1. Business
    Available Information
  Market Area
  1




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Competition
  Lending Activities
 General.
 Residential First Mortgage Loans.
  2




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##### Table of Contents



Commercial Real Estate and Other Non-Residential Real Estate Loans.
  Construction and Land Development Loans.
 3




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##### Table of Contents



Home Equity and Second Mortgage Loans.
  Commercial Loans.
 4




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##### Table of Contents



Consumer Loans.
 Commercial Equipment Loans.
 5




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##### Table of Contents



Loan Portfolio Analysis.
 At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Real Estate LoansCommercial
    
    $
    190,484
    
    
    
    41.55
    %
    
    $
    181,933
    
    
    
    42.63
    %
    
    $
    170,096
    
    
    
    45.53
    %
    
    $
    137,983
    
    
    
    47.07
    %
    
    $
    94,850
    
    
    
    42.93
    %Residential first mortgage
    
    
    90,932
    
    
    
    19.83
    %
    
    
    80,781
    
    
    
    18.93
    %
    
    
    73,628
    
    
    
    19.71
    %
    
    
    59,087
    
    
    
    20.16
    %
    
    
    42,971
    
    
    
    19.45
    %Construction and land development
    
    
    50,577
    
    
    
    11.03
    %
    
    
    41,715
    
    
    
    9.78
    %
    
    
    31,450
    
    
    
    8.42
    %
    
    
    17,598
    
    
    
    6.00
    %
    
    
    19,599
    
    
    
    8.87
    %Home equity and second mortgage
    
    
    24,650
    
    
    
    5.38
    %
    
    
    24,572
    
    
    
    5.76
    %
    
    
    25,884
    
    
    
    6.93
    %
    
    
    23,925
    
    
    
    8.16
    %
    
    
    19,562
    
    
    
    8.85
    %Commercial loans
    
    
    75,247
    
    
    
    16.41
    %
    
    
    76,651
    
    
    
    17.96
    %
    
    
    52,651
    
    
    
    14.09
    %
    
    
    37,495
    
    
    
    12.79
    %
    
    
    29,411
    
    
    
    13.31
    %Consumer loans
    
    
    2,465
    
    
    
    0.54
    %
    
    
    2,813
    
    
    
    0.66
    %
    
    
    3,128
    
    
    
    0.84
    %
    
    
    3,463
    
    
    
    1.18
    %
    
    
    4,097
    
    
    
    1.85
    %Commercial equipment
    
    
    24,113
    
    
    
    5.26
    %
    
    
    18,288
    
    
    
    4.29
    %
    
    
    16,742
    
    
    
    4.48
    %
    
    
    13,596
    
    
    
    4.64
    %
    
    
    10,473
    
    
    
    4.74
    %Total loans
    
    
    458,468
    
    
    
    100.00
    %
    
    
    426,754
    
    
    
    100.00
    %
    
    
    373,579
    
    
    
    100.00
    %
    
    
    293,147
    
    
    
    100.00
    %
    
    
    220,963
    
    
    
    100.00
    %Less: Deferred loan fees
    
    
    372
    
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    604
    
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    650Loan loss reserve
    
    
    4,482
    
    
    
    
    
    
    
    3,784
    
    
    
    
    
    
    
    3,383
    
    
    
    
    
    
    
    3,058
    
    
    
    
    
    
    
    2,573Loans receivable, net
    
    $
    453,614
    
    
    
    
    
    
    $
    422,480
    
    
    
    
    
    
    $
    369,592
    
    
    
    
    
    
    $
    289,325
    
    
    
    
    
    
    $
    217,740
 6




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Loan Originations, Purchases and Sales.
 Loan Approvals, Procedures and Authority.
  Loans to One Borrower.
 Loan Commitments.
 7




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Maturity of Loan Portfolio.
 Due within one

    

    Due after one year through

    

    Due more thanyear after

    

    five years from

    
    
    five years fromDecember 31, 2007

    

    December 31, 2007

    

    December 31, 2007(Dollars in thousands)Real Estate LoansCommercial
    
    
    $
    20,871
    
    
    
    $
    28,334
    
    
    
    $
    141,279Residential first mortgage
    
    
    
    3,239
    
    
    
    
    13,976
    
    
    
    
    73,717Construction and land development
    
    
    
    45,362
    
    
    
    
    5,215
    
    
    
    
    Home equity and second mortgage
    
    
    
    15,996
    
    
    
    
    3,412
    
    
    
    
    5,242Commercial lines of credit
    
    
    
    75,247
    
    
    
    
    
    
    
    
    
    Consumer loans
    
    
    
    652
    
    
    
    
    400
    
    
    
    
    1,413Commercial equipment
    
    
    
    7,662
    
    
    
    
    12,504
    
    
    
    
    3,947Total loans
    
    
    $
    169,029
    
    
    
    $
    63,841
    
    
    
    $
    225,598
  Floating orFixed Rates
    
    

    Adjustable Rates

    
    Total(Dollars in thousands)Real Estate LoansCommercial
    
    $
    23,295
    
    
    
    $
    146,318
    
    
    $
    169,613Residential first mortgage
    
    
    77,747
    
    
    
    
    9,946
    
    
    
    87,693Construction and land development
    
    
    
    
    
    
    
    5,215
    
    
    
    5,215Home equity and second mortgage
    
    
    8,654
    
    
    
    
    
    
    
    
    8,654Commercial lines of credit
    
    
    
    
    
    
    
    
    
    
    
    Consumer loans
    
    
    1,813
    
    
    
    
    
    
    
    
    1,813Commercial equipment
    
    
    16,451
    
    
    
    
    
    
    
    
    16,451$
    127,960
    
    
    
    $
    161,479
    
    
    $
    289,439
 Delinquencies.
 Non-Performing Assets and Asset Classification.
 8




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##### Table of Contents



Foreclosed Real Estate
  Delinquent and Nonaccrual Loans
  At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands)Loans accounted for on a nonaccrual basis:Real Estate LoansCommercial
    
    $
    
    
    
    $
    390
    
    
    $
    
    
    
    $
    
    
    
    $
    Residential first mortgage
    
    
    274
    
    
    
    273
    
    
    
    273
    
    
    
    273
    
    
    
    275Construction and land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    Commercial loans
    
    
    60
    
    
    
    303
    
    
    
    258
    
    
    
    393
    
    
    
    103Consumer loans
    
    
    80
    
    
    
    80
    
    
    
    7
    
    
    
    9
    
    
    
    1Commercial equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    414
    
    
    
    1,046
    
    
    
    591
    
    
    
    675
    
    
    
    379Total non-performing loans
    
    $
    414
    
    
    $
    1,046
    
    
    $
    591
    
    
    $
    675
    
    
    $
    379
   9




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##### Table of Contents



At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in Thousands)Balance at beginning of period
    
    $
    3,784
    
    
    $
    3,383
    
    
    $
    3,058
    
    
    $
    2,573
    
    
    $
    2,314Charge-offs:Commercial real estate
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial loans
    
    
    73
    
    
    
    
    
    
    
    3
    
    
    
    1
    
    
    
    35Consumer loans
    
    
    56
    
    
    
    8
    
    
    
    2
    
    
    
    3
    
    
    
    2Commercial equipment
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    14
    
    
    
    24Total Charge-offs:
    
    
    158
    
    
    
    8
    
    
    
    9
    
    
    
    17
    
    
    
    61Recoveries:Residential first mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    Consumer loans
    
    
    2
    
    
    
    3
    
    
    
    
    
    
    
    9
    
    
    
    Commercial equipment
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    8
    
    
    
    2Total Recoveries
    
    
    2
    
    
    
    3
    
    
    
    5
    
    
    
    49
    
    
    
    2Net charge-offs
    
    
    156
    
    
    
    5
    
    
    
    4
    
    
    
    (32
    )
    
    
    58Provision for Possible Loan Losses
    
    
    854
    
    
    
    406
    
    
    
    329
    
    
    
    453
    
    
    
    317Balance at End of Period
    
    $
    4,482
    
    
    $
    3,784
    
    
    $
    3,383
    
    
    $
    3,058
    
    
    $
    2,573Ratio of net charge -offs to average loans
outstanding during the year
    
    
    0.03
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    (0.01
    %)
    
    
    0.02
    %
 10




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##### Table of Contents



At December 31,2007

    
    2006

    
    2005

    
    2004

    
    2003Percent of Loans in

    
    
    
    
    
    Percent of Loans in

    
    
    
    
    
    Percent of Loans in

    
    
    
    
    
    Percent of Loans in

    
    
    
    
    
    Percent of Loans inEach Category to

    
    
    
    
    
    Each Category to

    
    
    
    
    
    Each Category to

    
    
    
    
    
    Each Category to

    
    
    
    
    
    Each Category toAmount
    
    
    Total Loans

    
    Amount
    
    
    Total Loans

    
    Amount
    
    
    Total Loans

    
    Amount
    
    
    Total Loans

    
    Amount
    
    
    Total Loans(Dollars in thousands)Real Estate LoansCommercial
    
    $
    1,739
    
    
    
    41.55
    %
    
    $
    1,479
    
    
    
    41.69
    %
    
    $
    1,466
    
    
    
    44.66
    %
    
    $
    1,909
    
    
    
    46.51
    %
    
    $
    1,409
    
    
    
    42.46
    %Residential first mortgage
    
    
    266
    
    
    
    19.83
    %
    
    
    97
    
    
    
    18.93
    %
    
    
    73
    
    
    
    19.71
    %
    
    
    59
    
    
    
    20.16
    %
    
    
    64
    
    
    
    19.45
    %Construction and land
development
    
    
    1,125
    
    
    
    11.03
    %
    
    
    662
    
    
    
    10.01
    %
    
    
    502
    
    
    
    8.73
    %
    
    
    132
    
    
    
    6.00
    %
    
    
    281
    
    
    
    8.87
    %Home equity and second
mortgage
    
    
    98
    
    
    
    5.38
    %
    
    
    104
    
    
    
    5.76
    %
    
    
    109
    
    
    
    6.93
    %
    
    
    120
    
    
    
    8.16
    %
    
    
    244
    
    
    
    8.85
    %Commercial loans
    
    
    930
    
    
    
    16.41
    %
    
    
    1,135
    
    
    
    18.66
    %
    
    
    709
    
    
    
    14.65
    %
    
    
    530
    
    
    
    13.35
    %
    
    
    381
    
    
    
    13.77
    %Consumer loans
    
    
    96
    
    
    
    0.54
    %
    
    
    126
    
    
    
    0.66
    %
    
    
    124
    
    
    
    0.84
    %
    
    
    138
    
    
    
    1.18
    %
    
    
    63
    
    
    
    1.85
    %Commercial equipment
    
    
    228
    
    
    
    5.26
    %
    
    
    181
    
    
    
    4.29
    %
    
    
    400
    
    
    
    4.48
    %
    
    
    170
    
    
    
    4.64
    %
    
    
    131
    
    
    
    4.75
    %Total allowance for
loan losses
    
    $
    4,482
    
    
    
    100.00
    %
    
    $
    3,784
    
    
    
    100.00
    %
    
    $
    3,383
    
    
    
    100.00
    %
    
    $
    3,058
    
    
    
    100.00
    %
    
    $
    2,573
    
    
    
    100.00
    %
 11




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting Policies
 Investment Activities
   At December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Asset-backed securities:Freddie Mac and Fannie Mae
    
    $
    72,072
    
    
    $
    72,602
    
    
    $
    84,334Other
    
    
    25,283
    
    
    
    29,956
    
    
    
    37,383Total asset-backed securities
    
    
    97,355
    
    
    
    102,558
    
    
    
    121,717Freddie Mac and Fannie Mae stock
    
    
    251
    
    
    
    342
    
    
    
    719Bond mutual funds
    
    
    3,390
    
    
    
    3,262
    
    
    
    127Treasury bills
    
    
    799
    
    
    
    800
    
    
    
    499Other Investments
    
    
    37
    
    
    
    145
    
    
    
    604Total investment securities
    
    
    101,832
    
    
    
    107,107
    
    
    
    123,666FHLB and Federal Reserve Bank stock
    
    
    5,355
    
    
    
    6,100
    
    
    
    7,190Total investment securities and FHLB
and Federal Reserve Bank stock
    
    $
    107,187
    
    
    $
    113,207
    
    
    $
    130,856
 12




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##### Table of Contents



After One
    
    
    After FiveOne Year or Less
    
    
    Through Five Years
    
    
    Through Ten Years
    
    
    After Ten YearsAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield(Dollars in thousands)Investment securities available
for sale:Corporate equity securities
    
    $
    200
    
    
    
    4.86
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %Asset-backed securities
    
    
    79
    
    
    
    4.85
    %
    
    
    1,981
    
    
    
    4.82
    %
    
    
    3,285
    
    
    
    4.78
    %
    
    
    378
    
    
    
    5.04
    %Mutual Funds
    
    
    3,332
    
    
    
    4.30
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %Total
investment securities available for sale
    
    $
    3,611
    
    
    
    4.34
    %
    
    $
    1,981
    
    
    
    4.82
    %
    
    $
    3,285
    
    
    
    4.78
    %
    
    $
    378
    
    
    
    5.04
    %Investment securities held-to-
maturity:Asset-backed securities
    
    $
    12,055
    
    
    
    5.12
    %
    
    $
    43,328
    
    
    
    5.12
    %
    
    $
    23,613
    
    
    
    5.37
    %
    
    $
    12,856
    
    
    
    6.29
    %Treasury bills
    
    
    799
    
    
    
    4.18
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %Other investments
    
    
    
    
    
    
    0.00
    %
    
    
    37
    
    
    
    3.20
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %Total investment securities
held-to-maturity
    
    $
    12,854
    
    
    
    5.06
    %
    
    $
    43,365
    
    
    
    5.12
    %
    
    $
    23,613
    
    
    
    5.37
    %
    
    $
    12,856
    
    
    
    6.29
    %
  Issuer
    
    Book Value
    
    RatingMaster Asset Securitization Trust
    
    $
    5,783,724
    
    
    AAA
 13




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##### Table of Contents



Deposits and Other Sources of Funds
 General.
 Deposits.
  (Dollars in thousands)2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateSavings
    
    $
    28,391
    
    
    
    0.97
    %
    
    $
    34,570
    
    
    
    1.18
    %
    
    $
    36,696
    
    
    
    0.59
    %Interest-bearing demand and money
market accounts
    
    
    137,001
    
    
    
    3.00
    %
    
    
    104,410
    
    
    
    2.92
    %
    
    
    89,394
    
    
    
    1.55
    %Certificates of deposit
    
    
    222,769
    
    
    
    4.72
    %
    
    
    204,675
    
    
    
    4.21
    %
    
    
    146,512
    
    
    
    3.32
    %Total interest-bearing deposits
    
    
    388,161
    
    
    
    3.84
    %
    
    
    343,655
    
    
    
    3.51
    %
    
    
    272,602
    
    
    
    2.37
    %Noninterest-bearing demand deposits
    
    
    45,969
    
    
    
    
    
    
    
    42,030
    
    
    
    
    
    
    
    39,855$
    434,130
    
    
    
    3.43
    %
    
    $
    385,685
    
    
    
    3.13
    %
    
    $
    312,457
    
    
    
    2.07
    %
  CertificatesMaturity Period
    

    of Deposit(In thousands)Three months or less
    
    
    $
    33,622Three through six months
    
    
    
    13,740Six through twelve months
    
    
    
    15,726Over twelve months
    
    
    
    9,167Total
    
    
    $
    72,255
 Borrowings.
 14




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##### Table of Contents



At or for theYear Ended December 31,2007
    
    2006
    
    2005(Dollars in thousands)Long-term debt outstanding at end of period
    
    $
    86,005
    
    
    $
    96,046
    
    
    $
    107,824Weighted average rate on outstanding long-term debt
    
    
    4.45
    %
    
    
    4.42
    %
    
    
    4.25
    %Maximum outstanding long-term debt of any month end
    
    $
    96,042
    
    
    $
    108,078
    
    
    $
    107,826Average outstanding long-term debt
    
    $
    86,993
    
    
    $
    101,520
    
    
    $
    93,409Approximate average rate paid on long-term debt
    
    
    5.16
    %
    
    
    4.42
    %
    
    
    4.25
    %Short-term debt outstanding at end of period
    
    $
    1,555
    
    
    $
    6,568
    
    
    $
    20,075Weighted average rate on outstanding short-term debt
    
    
    3.58
    %
    
    
    5.08
    %
    
    
    4.43
    %Maximum outstanding short-term debt at any month end
    
    $
    5,555
    
    
    $
    37,590
    
    
    $
    123,968Average outstanding short-term debt
    
    $
    2,902
    
    
    $
    18,129
    
    
    $
    82,665Approximate average rate paid on short-term debt
    
    
    3.51
    %
    
    
    4.99
    %
    
    
    3.10
    %
  Subsidiary Activities
   SUPERVISION AND REGULATION
 Regulation of the Company
 General.
 15




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16




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##### Table of Contents



Dividends.
 Stock Repurchases.
 Capital Requirements.
 Regulation of the Bank
 General.
 17




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##### Table of Contents



Capital Adequacy.
   18




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##### Table of Contents



Branching. de novo
 Dividend Limitations.
  Insurance of Deposit Accounts.
 19




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##### Table of Contents



Transactions with Affiliates.
 Loans to Directors, Executive Officers and Principal Stockholders.
 20




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##### Table of Contents



Enforcement.
  Personnel
  Executive Officers of the Registrant
  Michael L. Middleton
 C. Marie Brown
 Gregory C. Cockerham
 21




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##### Table of Contents



William J. Pasenelli
 James M. Burke
 James F. DiMisa
 
 Item 1A. Risk Factors
 An investment in shares of our common stock involves various risks. Our business, financial
condition and results of operations could be harmed by any of the following risks or by other risks
that have not been identified or that we may believe are immaterial or unlikely. The value or
market price of our common stock could decline due to any of these risks, and you may lose all or
part of your investment. The risks discussed below also include forward-looking statements, and
our actual results may differ substantially from those discussed in these forward-looking
statements.
 Our business strategy includes the continuation of significant growth plans, and our financial
condition and results of operations could be negatively affected if we fail to grow or fail to
manage our growth effectively.
  Certain interest rate movements may hurt our earnings.
  22




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##### Table of Contents



Our increased emphasis on commercial and construction lending may expose us to increased lending
risks.
  Our recent results may not be indicative of our future operating results.
  Strong competition within our market area could hurt our profits and slow growth.
  If we do not achieve profitability on our new branch, it may negatively impact our earnings.
  If the value of real estate in southern Maryland were to decline materially, a significant portion
of our loan portfolio could become under-collateralized, which could have a material adverse effect
on us.
 23




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##### Table of Contents



Our business is subject to the success of the local economy in which we operate.
  The trading history of our common stock is characterized by low trading volume. Our common stock
may be subject to sudden decreases.
   Ø
    
    actual or anticipated fluctuations in our operating results;Ø
    
    changes in interest rates;Ø
    
    changes in the legal or regulatory environment in which we operate;Ø
    
    press releases, announcements or publicity relating to us or our competitors or
relating to trends in our industry;Ø
    
    changes in expectations as to our future financial performance, including financial
estimates or recommendations by securities analysts and investors;Ø
    
    future sales of our common stock;Ø
    
    changes in economic conditions in our marketplace, general conditions in the U.S.
economy, financial markets or the banking industry; andØ
    
    other developments affecting our competitors or us.
 24




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##### Table of Contents



We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations.
  Provisions of our articles of incorporation, bylaws and Maryland law, as well as state and federal
banking regulations, could delay or prevent a takeover of us by a third party.
  
 Item 1B. Unresolved Staff Comments
  25




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##### Table of Contents



Item 2. Properties
  LeasedOffice
    
    Year Facility
    
    Or
    
    Date of Lease
    
    Approximate SquareLocation
    
    Commenced Operation
    
    Owned
    
    Expiration
    
    FootageMain Office:
3035 Leonardtown Road
    
    1974
    
    Owned
    
    
    
    16,500Waldorf, MarylandBranch Offices:
22730 Three Notch Road
    
    1992
    
    Owned
    
    
    
    2,500Lexington Park, Maryland25395 Point Lookout Road
    
    1961
    
    Owned
    
    
    
    Under constructionLeonardtown, Maryland101 Drury Drive
    
    2001
    
    Owned
    
    
    
    2,645La Plata, Maryland10321 Southern Maryland Boulevard
    
    1991
    
    Leased
    
    2009
    
    2,500Dunkirk, Maryland8010 Matthews Road
    
    1996
    
    Owned
    
    
    
    2,500Bryans Road, Maryland20 St. Patricks Drive
    
    1998
    
    Leased (Land)
    
    
    
    2,840Waldorf, Maryland
    
    
    
    Owned (Building)30165 Three Notch Road
    
    2001
    
    Leased (Land)
    
    2026
    
    2,800Charlotte Hall, Maryland
    
    
    
    Owned (Building)200 Market Square
    
    2005
    
    Leased (Land)
    
    2028
    
    2,800Prince Frederick, Maryland
    
    
    
    Owned (Building)
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  26




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Security Holder Matters and Issuer
Purchases of Equity Securities
 Market Price and Dividends on Registrants and Related Stockholder Matters.
  Stock Performance Graph.
  Recent Sales of Unregistered Securities.
     27




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##### Table of Contents



Purchases of Equity Securities by the Issuer and Affiliated Purchasers for the Most Recent Fiscal
Quarter.
  
 Item 6. Selected Financial Data
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operation
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
 
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A(T). Controls and Procedures
 (a)
    
    Disclosure Controls and ProceduresThe Companys management, including the Companys principal executive officer and
principal financial officer, have evaluated the effectiveness of the Companys
disclosure controls and procedures, as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange
Act). Based upon their evaluation, the principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this
report, the Companys disclosure controls and procedures were effective for the
purpose of ensuring that the information required to be disclosed in the reports
that the Company files or submits under the Exchange Act with the Securities and
Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and (2) is
accumulated and communicated to the Companys management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.(b)
    
    Internal Controls Over Financial ReportingManagements annual report on internal control over financial reporting is
incorporated herein by reference to the Companys audited Consolidated Financial
Statements in this Annual Report on Form 10-K.
 28




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##### Table of Contents



This annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by the Companys
registered public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only managements report in
this annual report.(c)
    
    Changes to Internal Control Over Financial ReportingExcept as indicated herein, there were no changes in the Companys internal control
over financial reporting during the three months ended December 31, 2007 that have
materially affected, or are reasonable likely to materially affect, the Companys
internal control over financial reporting.
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
 Proposal 1  Election of Directors Item 1
- Business  Executive Officers
 Section
1 6(a) Beneficial Ownership Reporting Compliance
  Corporate Governance  Committees of the Board of
Directors  Audit Committee
 
 Item 11. Executive Compensation
 Executive Compensation Directors Compensation
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 (a) Security Ownership of Certain Owners
 Principal Holders of Voting Securities
 (b) Security Ownership of Management
 29




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##### Table of Contents



Principal Holders of Voting Securities
 (c) Changes in Control
  (d) Equity Compensation Plan Information
  (c)Number of securities remaining(a)
    
    (b)
    
    available for future issuanceNumber of securities to be issued
    
    Weighted average exercise
    
    under equity compensation plansupon exercise of outstanding
    
    price of outstanding options,
    
    (excluding securities reflected inPlan Category
    
    options, warrants, and rights
    
    warrants, and rights
    
    column (a))Equity plans
approved by
security holders
    
    
    368,421
    
    
    $
    15.00
    
    
    
    137,118Equity compensation
plans not approved
by security holders
(1)
    
    
    60,200
    
    
    $
    13.05
    
    
    
    Total
    
    
    428,621
    
    
    $
    14.72
    
    
    
    137,118
 
 (1)
    
    Consists of the Companys 1995 Stock Option Plan for Non-Employee Directors, which expired in
2005 and which provided grants of non-incentive stock options to directors who are not
employees of the Company or its subsidiaries. Options were granted at an exercise price equal
to their fair market value at the date of grant and had a term of ten years. Options are
generally exercisable while an optionee serves as a director or within one year thereafter. 
 Item 13.  Certain Relationships, Related Transactions and Director Independence
 Relationships and Transactions with the Company and the Bank
 Proposal 1  Election
of Directors
 
 Item 14. Principal Accountant Fees and Services
 Proposal 2  Ratification of Appointment of Auditors
 30




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##### Table of Contents



PART IV
 
 Item 15.  Exhibits and Financial Statement Schedules
 (a) List of Documents Filed as Part of this Report
 (1) Financial Statements .
 
 (2) Financial Statement Schedules .
 (3) Exhibits .
 No.
    
    Description3.1
    
    Articles of Incorporation of Tri-County Financial Corporation (1)3.2
    
    Amended and Restated Bylaws of Tri-County Financial Corporation (2)10.1*
    
    Tri-County Financial Corporation 1995 Stock Option and Incentive Plan, as amended (3)10.2*
    
    Tri-County Financial Corporation 1995 Stock Option Plan for Non-Employee
Directors, as amended (3)10.3*
    
    Employment Agreement with Michael L. Middleton (4)10.4*
    
    Executive Incentive Compensation Plan (3)10.5*
    
    Executive Compensation Plan 2003 Amendment (5)10.6*
    
    Retirement Plan for Directors (6)10.7*
    
    Split Dollar Agreements with Michael L. Middleton and C. Marie Brown (3)10.8*
    
    Split Dollar Agreement with William J. Pasenelli (7)10.9*
    
    Salary Continuation Agreement with Michael L. Middleton (5)10.10*
    
    Salary Continuation Agreement with C. Marie Brown (5)10.11*
    
    Salary Continuation Agreement with Gregory C. Cockerham (4)10.12*
    
    Salary Continuation Agreement with William J. Pasenelli (4)10.13*
    
    Tri-County Financial Corporation 2005 Equity Compensation Plan (8)10.14*
    
    Community Bank of Tri-County Executive Deferred Compensation Plan (6)10.15*
    
    Amended and Restated Employment Agreement by and among Community Bank of Tri-County,
William J. Pasenelli and Tri-County Financial Corporation, as guarantor (9)10.16*
    
    Amended and Restated Employment Agreement by and among Community Bank of Tri-County,
Gregory C. Cockerham and Tri-County Financial Corporation, as guarantor (9)10.17*
    
    Amended and Restated Employment Agreement by and among Community Bank of Tri-County,
C. Marie Brown and Tri-County Financial Corporation, as guarantor (9)10.18*
    
    Amendment No. 1 to the Tri-County Financial Corporation 2005 Equity Compensation Plan
(10)13
    
    Annual Report to Stockholders for the year ended December 31, 200714
    
    Code of Ethics (11)21
    
    Subsidiaries of the Registrant23
    
    Consent of Stegman & Company31.1
    
    Rule 13a-14a Certification of Chief Executive Officer31.2
    
    Rule 13a-14a Certification of Chief Financial Officer
 31




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##### Table of Contents



No.
    
    Description32
    
    Certification pursuant to 18 U.S.C. Section 1350
 
 *
    
    Management contract or compensatory arrangement. (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form
S-4 (No. 33-31287).(2)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006.(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.(4)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended September 30, 2006.(5)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2003.(6)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2006.(7)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.(8)
    
    Incorporated by reference to Appendix A in the definitive proxy statement (File
No. 000-18279) filed with the Securities and Exchange Commission on April 11, 2005.(9)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended March 31, 2007.(10)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007.(11)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2005.(b)
    
    Exhibits.The exhibits required by Item 601 of Regulation S-K are
either filed as part of this Annual Report on Form 10-K or incorporated by reference
herein.(c)
    
    Financial Statements and Schedules Excluded From Annual Report.There
are no other financial statements and financial statement schedules which were excluded
from this Annual Report pursuant to Rule 14a-3(b)(1) which are required to be included
herein.
 32




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##### Table of Contents



SIGNATURES
  TRI-COUNTY FINANCIAL CORPORATIONDate: March 19, 2008
    By:
    /s/ Michael L. MiddletonMichael L. MiddletonPresident and Chief Executive
Officer
(Duly Authorized Representative)  By:
    
    /s/ Michael L. Middleton
    
    
    
    By:
    
    /s/ William J. PasenelliMichael L. Middleton
    
    
    
    
    
    William J. PasenelliDirector, President and Chief Executive Officer
    
    
    
    
    
    Chief Financial Officer(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial and Accounting Officer)Date: March 19, 2008
    
    
    
    Date: March 19, 2008
 By:
    
    /s/ C. Marie Brown
    
    
    
    By:
    
    /s/ Herbert N. Redmond, Jr.C. Marie Brown
    
    
    
    
    
    Herbert N. Redmond, Jr.Director
    
    
    
    
    
    DirectorDate: March 19, 2008
    
    
    
    Date: March 19, 2008
 By:
    
    /s/ H. Beaman Smith
    
    
    
    By:
    
    /s/ Austin J. Slater, Jr.H. Beaman Smith
    
    
    
    
    
    Austin J. Slater, Jr.Director
    
    
    
    
    
    DirectorDate: March 19, 2008
    
    
    
    Date: March 19, 2008
 By:
    
    /s/ Louis P. Jenkins, Jr.
    
    
    
    By:
    
    /s/ James R. ShepherdLouis P. Jenkins, Jr.
    
    
    
    
    
    James R. ShepherdDirector
    
    
    
    
    
    DirectorDate: March 19, 2008
    
    
    
    Date: March 19, 2008
 By:
    
    /s/ Philip T. Goldstein
    
    
    
    By:
    
    /s/ Joseph V. Stone, Jr.Philip T. Goldstein
    
    
    
    
    
    Joseph V. Stone, Jr.Director
    
    
    
    
    
    DirectorDate: March 19, 2008
    
    
    
    Date: March 19, 2008